Accessing Liquidity with Real Estate Syndication Secondaries
The Investor's Guide To Joy Episode 39
In this episode of The Investor's Guide to Joy, Paul Graham and Christion Sadler dive into the secondary real estate market, exploring how it provides investors with the opportunity to unlock equity before the typical 3-5 year lockup period. Christion explains how the Pre-iShare platform facilitates these transactions, offering a marketplace where buyers and sellers can connect. He shares insights into why liquidity is important for investors, whether due to life events or portfolio adjustments, and discusses the challenges of pricing and due diligence in secondary market transactions.
The conversation also delves into the creative possibilities within the secondary market, including structuring deals and negotiating terms, as well as the importance of being an accredited investor. Christion emphasizes the need for transparency, thorough communication, and understanding the risks and opportunities involved. With a focus on secondary market investments, he offers valuable advice on how investors can navigate this evolving space to unlock potential upside and achieve long-term success.
Highlights of the Podcast
00:07 - Introduction
02:32 - Christion's Role & Investor Profiles
04:25 - Investor Situations & Liquidity Needs
07:38 - The Need for a Secondary Market in Real Estate
12:24 - Due Diligence & Market Confidence
13:45 - Valuation & Pricing of Secondary Market Shares
15:44 - Process, Timeline, and Costs for Secondary Sales
18:30 - Buying and Selling Secondary Market Shares
19:16 - Due Diligence in Secondary Market Investing
22:39 - Benefits of Vintage Investing
25:27 - Types of Real Estate on the Platform
27:55 - Negotiating Secondary Market Transactions
32:43 - Accredited vs. Non-Accredited Investors
34:08 - Accredited Investor Status
35:41 - Secondary Market Benefits
39:08 - Preacher Liquidity Fund
41:45 - Operational Risks
45:18 - Personal Investment Advice
Paul Graham [00:00:07] Hello, everyone. This is the Investors Guide to Joy podcast. And my name is Paul Graham. Today we are going to talk through the secondaries market to give you an opportunity as an investor to ultimately see how best you can change the types of investments that you initially make. When you make a private placement into these various investment and fund strategies. Your equity tends to be locked for 3 to 5 years or whatever the PPM says that it's going to be. Christion and his company give a new innovative way for you to ultimately unlock that equity with the opportunity to have upside. It's a fascinating concept that I believe will be transformational to the industry, not only to the general partners, but also to the limited partners who are looking to extract that equity. We talk through the investor scenario and as a fund raiser, what you should consider in the process to ultimately see when, how or if this would be a valuable strategy. If you've already made investments in private placements and are looking to sell on the secondary market, or maybe you're looking to purchase secondary market type bonds that are being offered from limited partners, If you were looking to offset your taxes for 2024, consider investing in oil and gas. It's going to have more depreciation than real estate and give you passive cash flow to ultimately offset the most amount of taxes and give you the most upside for that investment. More information will be linked in the show notes for you to inquire about. And now let's get to the show table and we're going to meet with Christion, who's going to go through his company or the company he's the CEO of of Pre-iShare, really helping investors on the secondary market. So this is transformative as you are a non-accredited, but mainly more of an accredited investor who has invested in some sort of syndication and you're looking to potentially sell for some sort of equity play as well as an individual who then wants to get in this game. So we'll talk about the different process and the opportunity for it and really how you and your team are really seeing the market, because I believe it's just an absolutely different way to view what's happening. And you know, both in kind of the macro and in like the syndication space, that's different than just the everyday investor as well as the capital raiser. My opinion from the capital raising side is like everything's it's always, always a great time to buy and invest, right? Kind of like a real estate agent in a way. And, you know, this really gives that opportunity for really going through season. So, Christion, thanks so much for being on and sharing your insights here.
Christion Sadler [00:02:32] Absolutely. Thanks for having me.
Paul Graham [00:02:34] Yeah, no, you bet. And this is a fascinating thought because, you know, one initial thought that's coming to mind and then I want to give you a, you know, opportunity, give an introduction of kind of what this is how this is is like, are you seeing more of like first time type of investors in syndications that are, you know, exploring the secondary market in terms of like selling or is this more kind of the season people that maybe just were a little too lofty with their thought of returns and they're just looking to sell kind of one of their pieces? Like who really trying to define like, who is this typically and like who is this for? And then also go into like, who's this? Not for like, stop listening or like, just be curious, but like, don't go down this path.
Christion Sadler [00:03:14] Sure. Yeah. So this is really I mean, there's a mix when you talk about how long these people have been investing. Right. You do have some of the newer folks that maybe they've invested in a few syndications and they've got into, you know, with just the limited knowledge that they had. And then they started realizing, holy cow, there's all these opportunities that have so much better returns, I may be better off liquidating what I have now, even though it's a solid investment so that I can upgrade to a nother investment. But I think probably the most use case of the secondaries market is really when a life situation comes up. And of course we all have those right and we never know when when it's going to happen. So whether it's a kid get into college, you know, whether it's a medical emergency that comes up, whether all of a sudden we need to buy a house. We're seeing divorce situations where all of a sudden somebody needs the liquidity to to handle the divorce. And then one thing that we're not seeing yet, but I think we'll be seeing more of is probate situations. You know, quite frankly, some of these people that are investing passively, if they can stay there, hasn't really been an opportunity for their heirs to get access to the liquidity from those investments. And sometimes that can be a long term contention point. So this would be an opportunity to find that liquidity. Okay.
Paul Graham [00:04:25] Yeah. So so would you say it's seeming like more on the life situation than just the investor type play? Like kind of like 6048, 20 sort of thing, or what have you really found?
Christion Sadler [00:04:36] Well, I think they say 80% of statistics are made up, so I can make one up for you. But I would I would say it's probably 60% life event and 40% they're just looking to switch out what type of investment you know, that they're in. Really?
Paul Graham [00:04:48] Yeah, certainly. Yeah. Because by I mean certainly they would do the right underwriting to then get into the right deal that they then most likely is not going to be. But certainly I've had deals across my desk. I had the opportunity to buy an oil and gas company. I recall like three weeks ago we needed a $2.5 million amount of funds to be. Have really for a six month interest only, and then that can be converted into like operationalizing the company meaning to say like, you know, some funds I put into other places, I wouldn't radically be different. Right? Especially if we could double the net profit of that company. You know, I can buy a boat and, you know, truck to pull it and and never ever selling it. Right. But and so sometimes those deals come out of different situations or different market cycles or things like that. And so now that people are really thinking on or Go ahead. If you had to comment on that.
Christion Sadler [00:05:35] Yeah, I was going to interrupt there because as you bring that up, it brings to mind some of the scenarios that we are dealing with that actually are a jets that are finding liquidity, liquidity for other opportunities. So they have an LP interest because either they didn't raise all the capital and they put in money themselves or they just felt so good about the deal. They took some additional LP equity and we are finding those where they're they're staying in the deal but they're liquidating some of their passive interest so that they can take advantage of another opportunity. So we do see a fair amount of that as well.
Paul Graham [00:06:05] Yeah, that's important thing to highlight. And we're, you know, having conversations about it, you know, doing additional podcast here. But I do want to take a quick moment to simply say that like I have talked to, you know, of the world, if you will, not necessarily some that are, you know, the 100 million plus type AUM because they traditionally have enough cash flow and savings equity type piece to kind of live their lifestyle. But those that are like newer ish or like had the W to got into the syndication space, had some deals left W-2, life's real gravy until it's not. And they're really, you know, one specific example an individual that was going to have about 180 K payout in like two and a half years. And but you know, more or less this year was just chomping at the bit and was like, hey, like we might kind of force the sale a little bit or kind of convince some people to do the sale simply to get liquidity out because they just we're trying to figure out how to make, you know, ten grand a month just to simply survive. And it's that idea of like the marshmallows, like so far down the road where if you have one and you wait and then you get to at the end like, I'll wait all day. And it's like, what you got to eat to get there, right? And so I've seen that at least from, you know, some people that I know. So it's important thing to to call it and to give an option if yeah, they truly are an LP with it they can. So I'd love to just give you here a moment like describe more of like, you know what this is maybe even some background around it. I'm really just as we go through these questions, we can get a good grasp of like what we're talking about, what it is, as well as what the opportunities are considering. We just went through like a number of the different situations. Sure.
Christion Sadler [00:07:38] Yeah. And let's clarify that. We're talking about real estate secondaries. And so there's there's a secondaries market in almost every other asset class. And for some reason in real estate, it really hasn't been established. And so the way that I got into it, I was actually pulled into it by Michael Anderson. And Michael Anderson was a longtime real estate syndicator. He's been syndicating real estate longer than I've been alive so over 40 years and, you know, got started in retail and then built a company called Real Sauce in real Sauce did multifamily value add transactions. They did about $7.5 billion worth of deal flow and regularly held about $1 billion in assets under management. And, you know, that industry treated him very well and he decided to retire and he sold his company to his business partner. And as he puts it, he retired for all of about a half a cigar before he started thinking about new business ideas and things that he wished he could change about the industry. And he's very much an entrepreneur. I'm very sharp individual. And and so he really started thinking about all of the situations that had come up, whether it was, you know, one of his track buddies that, you know, was on the list for the new Ferrari or whether it was an investor that called because their wife had cancer and insurance was covering it. Or, you know, he talks about where oftentimes he would have these long conversations with investors before they invested and they would say they would explain to him, you know, I'm putting this money to work so I can pay for, in some scenarios, kids college. Right. And then, you know, three years later, hey, guess what? Kid got into Ivy League school and they got in earlier than expected. I need that. Liquidity was really tough for Mike to say no in any of those situations. And so that put the pressure on him. And as you know, and as you talked about many GP's, they have to scale before they're really making any type of real, you know, wealth for themselves. Most of their wealth ends up held in these projects, in these properties until there's some sort of an exit. And you know, so he just thought, why, why isn't there a more simple way? And he started talking to other people in the industry, you know, people that he was friends with along the way. And it really spanned from when there didn't used to be 5 or 6 C, which is fairly recent. What was that, 2012 or whatever, when they made those changes and and updated the ability to take in, you know, people that were not already an established relationship with you. And so back when it was only 5 or 6 B, you had to have that pre-established relationship. And so they wrote that into all of the documents. And still many people are today that says, if you invest with me. Massively that and you need out earlier than there isn't an exit on the deal itself, the transaction itself. Then you have to sell it back to me first. And if I don't want to buy it, then I may give you the opportunity to sell it to somebody else. That's that. That's already a part of the transaction and it really puts people in a tough spot where how can you realize any of your equity? How can you get a true fair market value if you're negotiating with people that invested with you in the first place originally? And their perception of value is where you started, even if they're the ones who have taken and doubled the value of that investment over the last couple of years. And so by having a marketplace where people can list those, which is what price share as has created, is a listing hub, a website where you'll list your shares and in an existing transaction, find a buyer and then get approval from your sponsor to sign off on slotting that new accredited investor into their transaction. And so that's the core concept of it. I'll stop there and then we can jump in. Any other questions that you have?
Paul Graham [00:11:11] Yeah, no. Great. So I at one point just to share a story, went down the path of Marriott Vacation Club, right. And found out that there was a secondary market for that. So I said, Hey, thanks so much for your time. Like, I'm going to explore this. I didn't end up pulling that trigger there, but it really gave this idea, I'm like that. There is the secondary market in a lot of ways. It's kind of like a duh, like, you know, use couch is used again, all these things, right? But it really hasn't been one for real estate. So it gives this incredible power and opportunity. One thing that, you know, I thought of with the Marriott Vacation Club sort of aspect is like, are these, you know, legitimate and vetted and things like that in the age of just the the virtual real estate, if you will. Right. Sometimes there's that sort of concern. So I'd love for you to also talk about kind of the, you know, compliance or any underwriting or concept that people have and kind of reassurance for people to understand like these are, you know, exist in some aspect or if at the very least it's just the contact information is and, you know, they need to do their own due diligence, which they certainly shouldn't regardless and need to. But curious where, you know, your platform kind of starts and stops with that sort of, you know, validation and consideration.
Christion Sadler [00:12:24] Yeah. So we emphasize very much on doing your own due diligence, make sure you're, you know, understanding who you're dealing with, you know, the overall project itself, you know, because we're, we are buyers on the marketplace as well, right? We so the PRI share liquidity Fund will buy these secondaries and create some instant liquidity. So there's a lot of due diligence that we will do on assets that we're looking to buy, But we don't go on to get into the aspect of doing any sort of recommendations for others or, you know, the due diligence on their behalf. Because as of, you know, the platform, we don't control any of those transactions. We don't take any, you know, promote on the sales or anything else. It's just a flat fee listing service, really a classifieds site where people can list and and then find a buyer and then ultimately, you know, go do your due diligence. So if you're a buyer on there, you really want to come in in there as a sophisticated investor, understanding how to verify that the the person owns the shares, that he owns the real estate and that you're buying something tangible and real.
Paul Graham [00:13:26] Yeah, certainly. So talk to me more about what that's like. Right? So I see something that's offered at a certain price point, you know, certain deal, you know, things like that. You know, is it negotiable? Like who's setting that value? Like, how would I even go about underwriting that piece of ownership that's on the secondary market?
Christion Sadler [00:13:45] Yeah, great question. And really, a lot of times the first question that comes up is, sure, you can sell these things, but what discount do you have to take? And sometimes there's just this automatic perception that if you're selling it, you're going to have to take a discount when the reality is it's it's an asset. And how good you are at selling it is where you can price it. So we don't control any pricing. We don't suggest any pricing. It really comes down to you have this asset and it has value of some sort. Otherwise, you know, you probably, you know, wouldn't be trying to sell it. So you determine what that value is and then that person who's buying it is going to negotiate and they're going to determine what their value is. And what you'll find is there's a lot of different types of investors out there. So some investors really highly value the amount of current cash flow that's coming from an asset. Others are going to really value what is the upside equity, right? And so, you know, when it comes down to it, you want to price it appropriately to find the buyer that is looking for that asset in the stage that it's in with its current investment cycle.
Paul Graham [00:14:47] Yeah. Yeah. I mean, that's an interesting piece to think about and yeah, evaluate and understand. It's definitely a buyer beware sort of use case, you know what sort of like to talk us through the experience, right? Because you know, when I go to sell maybe an investment property I talked to a real estate agent and it's hey days on market or. Days typically takes 32 days to close. And, you know, here's the kind of concessions or it's a buyer's market or all that kind of stuff, like what sort of timeline are we looking at, what sort of logistics, what sort of concerns and what like additional costs? My viewpoint is that I'm totally going to give this to my lawyer, right, to review the PM, to review, you know, some of these things and what's going to happen and are we doing like a side agreement with the Individ? Like, you know, we can go through that kind of legal pieces, as you may know, into it, but just like kind of timeline and tactical costs in addition to that, you know, asset, what does that look like? Yeah.
Christion Sadler [00:15:44] And I will say that because we are so new to the market, there's not a lot of data that we can run off of. I am excited for the time that we have all of that data and we can talk about the different types of assets and what they're trading at as opposed to their current value and, you know, timelines and things of that nature. But it's easier if I just explain the process so you have a share in an existing asset and maybe that that share has equity and also has cash flow. So you're going to go and you're going to make a listing on the listing hub. Now you have this assets that's up there for sale and maybe you invested $100,000 in and I'm just throwing random numbers out there. But you believe it's worth $250,000 currently. Plus it's paying you, you know, 8%. So you go listed at a $200,000. Right now, it's about finding somebody that can see that value and say, okay, I see the equity multiple and I can I'm still getting a roughly 4% return on my money right now. I want to buy that. Well, you now need to get the sponsor involved. The sponsor always has to sign off on any trade of a secondary because ultimately they're the ones that take the liability of what investors are involved in the transaction. So they're still going to need to verify if this is A506C, for example, that these are accredited investors. Now, there's a lot of third party services. It's real easy to do that these days, but you do get sign off from the sponsor now, many sponsors. And what we're finding is this has been adopted by the sponsors at an even higher frequency than the investors, surprisingly, because many of the sponsors say, you know, when they really think about it, they say, okay, I've got an investor that wants out of my deal for one reason or another. I have somebody else, a brand new accredited investor that I didn't have to go advertise for. I didn't have to go to an event to meet. They just are brought to me, you know, served on a silver platter that wants to be in my deal. And I just all I have to do is sign off and, you know, do the basic due diligence on allowing them in. Most sponsors are really in for that. And when you when you figure out how this helps to align those interests, I think there's a real benefit there. So, you know, that's that's kind of the big aspect. Now, some sponsors will say, hey, listen, there's some legal fees involved in this. And we've noticed like for some of the bigger sponsors and I won't name any names, but there's some, you know, big names out there that have, you know, thousands or tens of thousands of investors. And so some of those people are now looking for liquidity. And those guys already have processes in place. It's going to be this much in legal fees. We only make the transfer, you know, at the end of a quarter, you know, so some of those rules and whatnot in place. And so if it's a smaller sponsor, they may not have any of that in place and they may not require any sort of fee. But that's the only potentially added fees that I would say are going to be there as the sponsor may tack on some fees and there may be some legal fees on your end to make sure you're doing things properly.
Paul Graham [00:18:30] Yeah. What you have. So that's you think about, you know, are those things you're mentioning like would be in the palm or what sort of where would those kind of details of like buying and selling be.
Christion Sadler [00:18:40] Located yet now typically as of right now, because it's not widely adopted, not a lot of people have those you know like built in to to tell people how to do it. They just have it as internal processes. So it's about reaching out to the sponsor. And so I would say if you are an LP and you're looking to sell your shares, it's a good idea that as you're building the listing to reach out to your sponsor and just ask them the questions, I want to go find a buyer that can buy my shares. Will you allow me to do that? And if so, what are the processes? You know, is there anything that you're going to require above and beyond, you know, verifying this this investor, this buying in?
Paul Graham [00:19:16] Yeah, certainly. And it's definitely the, you know, again, idea being on the secondary market to then say like, you know, as it's foreseen as valuable then people like would invest in it meaning to say if a project's going down the drain then you know certainly it's values decreasing and through due diligence it's then, you know, understanding that and what have you, what, you know, ability does your platform give to talk to like the sponsor beyond just the investor? Because obviously the sponsor needs to vet them. But what I'm curious about specifically is that as someone who wants to do like thorough due diligence, like I want to be able to connect and do all the things that I might want to talk to everyone on the syndication team, right? Maybe be, you know, a little annoying. Not not myself. I think that's a little egregious in some aspects. At the same time, potentially like I don't want to do a secondary piece and lose the change because I didn't do enough due diligence to figure out, Hey, this thing's going down the Google and down the tubes. So curious, you know, beyond just what the sponsor is giving, you know, this new potential investor, what kind of resources or maybe information do you give, you know, the investor who's looking into the sponsor and into the project?
Christion Sadler [00:20:30] And again, we're we're really not giving anything, right? Because we we're simply a classified site. But we do suggest you get that information. One of the things that we do have is we have predecessor approved sponsors, and these are sponsors that essentially raise their hand and say, we want to offer this liquidity and they allow us to do some due diligence on them. But by no means do we tell the buyers to rely on that as a go ahead. But what we do there is we look at the background checks on all the primaries of the the we look at the track record, looks at look at there's some basic information. We have an internal algorithm that we'll look at, including their reporting procedures and those types of things. And then if they can meet a minimum score, we will allow them to be re I share approved. And at that point we actually give them extra promotion. So we'll bring them on to our podcast, for example, and offer them additional exposure. But those people are going to be probably a lot more receptive to a conversation if you come in trying to buy a secondary in that's inside their investor or investment. But I think you'll find that a lot of others will be open to it as well. And kind of it comes down to how how much are they focused on taking care of their current investor pool. And most good sponsors out there want to keep their investor pool happy.
Paul Graham [00:21:49] Yeah, certainly, especially when it provides, you know, optionality to essentially these life events of things that, you know, they weren't necessarily prepared for. And certainly if you're trying to, you know, liquidate and, you know, leverage into other deals, you know, there's not as much of an emotional tie and kind of a hit to the ego. What do you mean you have a better deal than the one I have? But again, you know, up to, you know, the GP to then have this for the LPs like you mentioned. And then certainly, as you know, those conversations can happen for the LPs and others to to conversate about have I guess and this is maybe kind of skipping around your platform or something, but like if someone wanted to get in some sort of fund, you know, that was closed, like do you find that, you know, guess what would the question be like? I think a guy for something comes up. Yeah, yeah.
Christion Sadler [00:22:39] I think I know where you're going with this. And this is what I see as being a real benefit to the secondary market is kind of like private equity. You have what's called a vintage, right? So you might get it at a 1994 vintage that was a closed, you know, scenario. And if you can buy it on the secondary, then all of a sudden you're getting those types of returns. And I think we're going to find that same thing in real estate, because oftentimes in real estate, when a sponsor starts, they give up a lot more equity in the beginning to the passive investor in order to attract to the investor pool. Right. And so if you can go get into a let's call it a to a 2020 vintage where they were offering 80% to their passive investors versus 70%, and they also in potentially in that 2020 vintage had 3.5% interest. I mean, you think about just that alone, you know, the fact of now having ownership in this property that has interest at half the cost of what it is today leaves you some some substantial additional upside just from the, you know, the paydown of that loan over the next three years, five years or whatever that timeframe is. And so there's there's benefits, you know, that way as well, especially if those GP's got fixed rate debt and whatnot throughout that. So just think of it, thinking of it from that standpoint I think might have been where your thought was going is you, you buy into these old vintages and get the upside benefit for doing so.
Paul Graham [00:24:04] Yeah, it almost reminds me in some ways of like wholesaling with real estate where it's like, hey, like, you know, who do you know that has a problem? This is the platform, you know, I leverage or the concept of it, you know, would you be open to it? And it's like, Well, I've never heard this before as a Yeah, I actually just talked to an investor the other day, you know, maybe this is, you know, an opportunity and yeah, almost making me think of finalist Did you send him an email and you know maybe get some discounted you know, opportunities But again, to your point, it's not a guarantee that it's a discount. It's really dependent on, you know, the situation that they're going through and their willingness to sell, not necessarily the market value and market price because they're, you know, kind of being forced and whether it's their own foreseeing or maybe other life events that are forcing them, you know, to do that sort of transaction, which is an interesting perspective I wasn't initially thinking about. And it's it's good to then, you know, know. And so you mentioned this is for real estate to talk to me more about that right. Is this residential or could it be residential? But it has to be a fund. Is it, you know, all types of different commercial. Multifamily, self-storage and all these sort of things. Could it be something like a debt fund? Could it be oil and gas? I'm not going to go into the art and the other alternative investments because I'm not as familiar, but from the sense of like single family, general commercial debt and oil and gas. Like, what is this for and what is this Not for right now?
Christion Sadler [00:25:27] Yeah. So as of right now, we keep it strictly to real estate, and it's typically going to be either a equity in a syndication or a fund or it's going to be first position in debt. So those are the two things. I guess three things. But, you know, kind of the two main categories on our website that you can access as far as secondary. And then, you know, we we we're trying to stick with real estate. But as we've now ventured into helping others find accredited investor leads for raising capital, we have all these other asset classes coming to us and potentially wanting to be on our site. So I don't think it'll be on the current listing hub, but you know, maybe a future, you know, secondary website or we just partnered with somebody that already has that because there's plenty of companies that have, you know, all alternative assets but don't really have a real estate focus. So that to answer your question more concisely, it's real estate only and it's got to be equity. It's not like you're putting on, you know, your home equity or selling a single family home on there. It's an equity position that's passive.
Paul Graham [00:26:28] Yeah, sure. Okay. Yeah. And there yeah, it's fascinating to to think about as you're going through this kind of wealth creation, like again, having that opportunity. And certainly in real estate, I found it's like the best way to like scale that unless you somehow, you know, get into a PPE type deal and you know, that takes off. But that's, you know, few and far, far between. I've often seen what. So we talked a little bit about the process and you know what it takes, what it is, what it's not, you know, what does that mean in terms of like the benefits, right? So let's think of, you know, taxes, ongoing depreciation, things of that nature. You know, if I were to buy something in year one and I took, you know, the depreciation for, you know, whatever that deal was, then I then own that year, you know, two or a year for whatever it is. And I then, you know, look to sell. What does that mean in terms of that, you know, year one or I mean, is is everything negotiable? Could I because now because then you have to amend taxes and that kind of stuff. So I mean, I guess really it's to say like how how many like levers and negotiating points do people have in terms of buying or is it, you know, kind of like how clean where, for example, depreciation can't transfer or cash flow can or, you know, some some sort of factors that we wouldn't think about because otherwise we would just look at the PowerPoint deck and the PM. It's just like, great, I get exactly that or I want that, But 20% discount. But there could be other things that we may not be aware of that again, may not transfer fully or partially or what does that look like?
Christion Sadler [00:27:55] Yeah. And I'm not well versed enough on the tax side to know what you could do retroactively. You know what I do understand for the most part you can talk to your tax professional is once you buy that secondary that you're going to get the depreciation moving forward. So if there's still some of that front loaded depreciation, you may get some of that, you may just get some of the, you know, traditional depreciation that's ongoing As far as what can be negotiated there, I'm not sure. But we have seen some creative situations even from our own fund as we're negotiating with folks where they say, you know, I don't necessarily want to take that offer because it's not quite the amount of capital that I want. And and I really think their backside value is, you know, so much higher. And, you know, we can turn around and negotiate and say, okay, well, how about you take that offer, but we'll give you a portion of the backside, almost like a coupon that when there's an exit, if you really believe that there's so much more value there, then we can give you a certain segment of that. Obviously, you know, you got to write that up in detail and figure out who's, you know, taking care of that. The accounting side of that with our fund, of course, we have a controller that can, you know, segment out and and make sure that that's all tracked properly. But you know, there is some creativity that way where, you know, they think that there's more equity on the back end, but you only want to offer them a certain amount of cash now and you can take over the current cash flow, but offer them some of that back back side equity.
Paul Graham [00:29:19] Yeah, I mean, that's an incredible thought to to think about it, how that negotiation plays. That's certainly going to be a conversation with a lawyer to draft. You know, what that looks like. And I'm not sure what documents that would be or if you would then be selling a security almost back to the investor and something that's, you know, out of my purview. But from my viewpoint of real estate, you know, was a former commercial real estate broker. The idea like everything's negotiable unless I mean, yeah, it's just the idea like everything's negotiable. It's just, you know, what what what is possible on it. So I guess to say in another way, like, are you familiar, have you seen like what sort of legal pieces or parts like people need to consider and talk to their lawyer about with the like coupon piece? Like is that another PM is that can. Considered a security. Like what? What sort of things come up that you found from what you know? Because a lot of this is relatively new. And as people, you know, realize that this is possible. And then as creativity increases, you know, even more so.
Christion Sadler [00:30:21] Yeah. No, it's a great question. And and for us, I mean, honestly, on that scenario, we ended up first offering it and it was just going to be a side agreement with us where essentially on our accounting side, they would get paid out on the back end from us to them. Right. But we ended up renegotiating that anyways where they decided to just take a little bit higher cash amount and make it a little bit more of a clean transaction. So I think there's a lot to think about there. Definitely get your lawyers involved, definitely make sure that there's some accountability in that. And I don't know if that includes, you know, you now need to write a, you know, some sort of a PM back to them that guarantees that that amount. Sure.
Paul Graham [00:30:59] Yeah. Well, certainly for yourself, for anyone listening, if you encounter that. Reach out to Chris and I and let us know. And be curious to understand because. Yeah. And a lot of ways it's new charted territory and I'm just of the belief that this is going to continue to grow and expand into what you know, subject to in a lot of ways has created where, you know, it's just the creative financing sort of piece. It's almost like creative selling, creative buying, if you will, which is really exciting for me because I've really found, you know, for my wealth journey that investing in these sort of pieces or just real estate in general has really given an opportunity to leverage beyond, you know, what I could make just through hard work and really give the opportunity for the experts to really do their thing as well as find deals. In this case, deal being, hey, like some, you know, life event or again a GP that has some LP interests or, you know, other situations that then give me an opportunity to come in that maybe I otherwise wasn't going to be able to again, timeline, you know, equity stake, initial cash, you know, something like that is is important. So I'm really excited, you know, for this what what would you say is the the the fit or kind of process for this secondary market? And specifically what I'm asking is if something was you know, in is still, say, A 5 or 6 B, I'm accredited. Does that mean I mean, I could purchase there really shouldn't be any friction there. Right. But like are there scenarios between like non-accredited and accredited investor versus fund or, you know, secondary market type piece that are like showstoppers or maybe just concerned or certainly you can't, you know, be non-accredited and get into accredited fund. So, yeah, curious if there's other maybe restrictions that you've seen so far.
Christion Sadler [00:32:43] I think it's mainly what you're saying is you just need to make sure if it's a, you know, an accredited fund, then you need to take somebody that is accredited. So if somebody comes in and makes an offer, it's ultimately going to be on the sponsor. But if you're going to bring them somebody, it's probably smart to bring them somebody that can fit into their transaction. So that's why the communication really, you know, comes early if possible, because quite frankly, on a lot of 5 or 6 fees, they also have a certain amount of non accredited investors that you can take. Right. So they may not be full on that 35 accredited investors. And if you've got somebody that you know the sponsor and you know this from the fact that you also talk to a lot of capital raisers, they look at the long term vision of this. So if they get somebody that right now is, you know, liquid and wants to be involved in them and invested in their deal and they can see some additional upside, that person is likely, if things go well, to invest over and over with them. And that's what we're always looking to do, is build out our investor pool of people that are loyal to us that like being involved in our transactions. And why would we put a barrier in there if there's, you know, not a legal barrier to do so. But definitely, you know, you've got to verify is this does this person have to be accredited, not accredited? And typically, I think in equity it's just easier to go for accredited investors. We actually have, you know, a disclaimer on the site when you register that says in order to transact equity, you'll need to be an accredited investor because that clarifies that.
Paul Graham [00:34:08] Yeah, you bet. And the best way I found to understand if you're an accredited investor is work with your CPA to go through that process, get that letter by all means. You can use Excel spreadsheets to assume you are right. But there's a difference between actually being and, you know, having that certification. And I would also assume that would make the process easier as well. And certainly it's easier to have that transactional piece if you are accredited just because there's additional hoops that you've already, you know, jump through essentially because you don't have that relationship initially. I would also think, you know, you may not be able to be non-accredited and get in a non-accredited fund, but, you know, in a lot of ways, this is kind of learning as as things are, you know, growing. You know, when we because we talked a couple of times at this point, you know, you're now the CEO of the company. I've shared my sentiment of like, hey, this is, you know, great, amazing. And I'm so excited, you know, is this Bitcoin? Is this, you know, nfts or virtual real estate? Like, I'm not going to put that comparison because it's its own unique thing. Where do you see this going? Is this going to radically, like flip the entire primary industry on its head? Is this just, you know, an impact of, like, you know, 1% or 20% or 80% of the market sort of thing? Certainly there's like the vision of, you know, maybe all of it, right? Everyone wants all of it. But like, where do you see realistically, let's call it in one year, five years, and like, you know, five decades of sorts, you see this or does it even change over time? What comes to mind for you?
Christion Sadler [00:35:41] Well, and I wish I knew the timeline of when this really gets adopted, because I do think that it's going to make for a better marketplace in real estate syndication as a whole. I think there's benefits for both sides. There's benefits for the people that need the liquidity. There's benefits for the syndicators as well. And you know, again, Michael Anderson, our founder, talks a lot about this as a real estate syndicator. If you're building a large organization, if you've got $1 billion in assets under management, there's a lot of additional value you have from holding onto that long that property long term, potentially forever. But it's built in if you're running it as a syndication that you your interests aren't aligned with your investors in that scenario. Right now, they want to see an exit. So with a secondary marketplace, there's the potential for you to build your long term vision where you hold these properties forever. So you're getting the ancillary income on having the property management in house and having the asset management and house and, you know, all of those different things there. So I really think it's going to help the market as a whole. It actually will probably bring down the cost of equity in some cases as well, because up until now, when you're out there, you know, pitching a passive investor, you're going to have seven out of ten of them that want to be in your deal because they like real estate. They like your vision for it, but they just don't know that they can, you know, hold out for three years or five years. They don't know what life events are coming out. And that's what oftentimes holds people back from investing in real estate when they would much rather be there than in other asset classes, for example. So if they now know there is a liquidity option out there, then they're going to be more likely to invest. And the reason that we offer such phenomenal returns oftentimes in real estate is because we have to overcome that lack of liquidity. So overall, I know I'm not giving you specific timelines because quite frankly, I thought it would have been adopted a lot faster even by now. And maybe that's just the optimist in me, but also from the investor standpoint, if I can switch topics a little bit because we just haven't hit on it yet. You know, the reason that we have our fund, the Preacher Liquidity Fund to buy these secondaries is the benefits that I think many buyers should be thinking about. You can buy late stage, so that means that you're going to be quicker to an exit, right? You can evaluate the deal based on its performance versus pro forma. Right. Typically, when you invest in real estate, you're looking at what they hope it can do. But if you can look at the last two years history before making a decision to buy, that really gives you some potential upside that way. So, you know, there's some major benefits as a buyer when you look at these. And then if you can also potentially negotiate yourself a discount and you can have immediate cash flow on something that maybe was a value add or even development deal that you're buying in late, late enough that you're getting immediate income plus some upside. That's where I really think that this is going to create a new asset class where people are are going to be very strategic in it. And there's other folks that may be really good at picking good sponsors and negotiating good terms on the front end. So they may go in and negotiate great terms, invest their capital. Hold that until the you know, the value has gone up, gone up significantly, and then turn around and sell back to a more patient investor or an investor that has, you know, a less of a risk tolerance and wants to see some stability with that transaction. And they there can be some additional trading that there just really hasn't been in these passive real estate assets.
Paul Graham [00:39:08] Yeah, certainly. So conceptual is that more for me right. So you I shirt's like an actual fund that investors could invest in directly.
Christion Sadler [00:39:15] yes. Yes. So we do have a fund. And what we're doing is we're buying these secondaries at scale. All right. So we're buying with immediate income plus upside. And that's pretty phenomenal. Yeah.
Paul Graham [00:39:26] And is that for non-accredited accredited? Does it depend?
Christion Sadler [00:39:29] 506C So it is accredited investors only.
Paul Graham [00:39:33] And what sort of minimums are you seeing or is it a set amount? I'm not sure if they're multiple funds.
Christion Sadler [00:39:38] Or Yeah, as of right now, we just have the liquidity fund. And currently we're early stage, so we are allowing investors to come in with as little as $50,000 in in capital that will be higher in the future. But as of right now, like I said, we're just kind of priming things and we're very early stage.
Paul Graham [00:39:55] Yeah. Okay. Awesome. Yeah, that's great to know as well for those that are interested in the secondary market, but who may not be wanting or willing to do kind of that due diligence piece of that evaluation. But. We kind of following along the way if you know that you're creating and then also, you know, purchasing as well. So yeah, I mean, this is incredible and something I'm really excited about because it's just like you said, it's buying something that's performing. Not necessarily pro forma because every single syndicator in the world, like just is like, yeah, this is going to go 3% up every single year for five years and we're going to sell it. Right. And the analysts in me is just like malarkey, you know, like what about, you know, different, you know, election event or, you know, all this kind of things. And and those things are also tough to predict of like, how is that going to impact. Right? Like we think there's going to be some sort of like downturn in the next five years during this property. You know, is that going to how much is that going to offset? And you don't want to give too much information, if you will, to the investor because then they're going to think more about it and then, you know, be kind of in a state of paralysis almost. But for me, at least, underwriting, you know, in tune, like I'm going to go through that and that's something like we go through, you know, our deals in oil and gas and I've also done with in commercial is like great, like the population growth is a ton right now. You know, when do we reasonably expect it to stop or things to change or things like that and where's it going to then stabilize or potentially dip? Because that's really where you see that equity play coming to come into is it's great if it is or if it's going to continue, but then you want to sell, you know, near kind of have that height or at least that stabilization because if it's just a quick peak, then, you know, you really got to understand that if that that could peaks within two years. And your plan is to keep it for, you know, 4 to 6, well, then instantly, you know, you've lost that, right? So definitely understanding, especially on the multifamily space, that most tend to be in having those metrics and understanding as the, you know, underwriter analyst investor is important.
Christion Sadler [00:41:45] So yeah, and the one thing you really can't predict per se when you're investing with somebody is how they're actually going to operate, right? So you may have looked at the feasibility study, you may feel really confident in the ability for the lease up and everything else to happen. But if you get an operator that just, quite frankly, sits on their hands or, you know, hires outside a third party operations that aren't managing the property properly, it's hard to know that. But when you can look at it, you know, a year or two years, three years into the deal and you can see how these how they've handled it so far, even if they've seen some hard times because of market conditions. If you can also look at the reporting that they've done and how transparent they've been, that may make you want to be more involved in, you know, investing with that investor.
Paul Graham [00:42:28] Investor relations. Yeah. I mean, it's another powerful thing as part of the capital raising process where it's not just, you know, getting people in and taking care of your investors, but it's also informing your investors that way they can make the best decisions. And certainly through this, you know, they can kind of do that One, You know, big question I have is on this idea of like timeline or time of year from what you know right now, like does it matter? Like when investors are starting to talk to people on the secondary market, are that are typically better times a year than not? Like what sort of maybe trends or maybe things should people think about when they're approaching this to add to their portfolio?
Christion Sadler [00:43:07] Yeah, I don't know that there's anything there as far as trends on time of the year. Like I said there, we have already run into it where certain gaps are only going to make those transfers on a quarterly basis. So that's something to think about is you may get into a negotiation and, you know, lock in a deal, but you can't transfer it for another two months or you may get the deal and then, you know, missed the timeline and you have to wait an additional quarter before you can make that transfer. So that's the only thing that I've seen as of so far. I mean, I think you always come to that fourth quarter scenario where people are needing to allocate capital for one reason or another. You know, oftentimes tax reasons, you know, sometimes just for, you know, planning for the future year. And so I think the fourth quarter is a great time. Like people always think that. I think that the public perception is that the fourth quarter is when business slows down. But for as long as I've been in real estate, the fourth quarter is when a lot of activity happens and there's a lot of movement because people are needing to make decisions. They're looking to launch into a, you know, a new aspect of their portfolio or they just have those tax reasons. And quite frankly, most of us would rather put that money to work for ourselves rather than giving it to the government.
Paul Graham [00:44:21] Yeah, and we're certainly see that in the oil and gas space. And certainly for those investing in real estate for tax reasons, absolutely agree. And at some point it's just like human psychology. It's kind of like, hey, we took the summer off, we came back, kids are in school. We're now operational. All right, let's start things. And as you have conversations and meet people, then we slowly get into October and then, you know, the holidays, all the stuff. Like it just sort of naturally sort of drags into it. So this has been incredible. You know, we'll definitely put in some ways and places for people to contact you as well as just, you know, the company overall and as it pertains. And, you know, through this idea of like the investors guide to joy and we invest in the secondary market, you know, what would you put as a like quote or mindset perspective or a piece of it of. Ice or something like that, that really comes to you as either like from a personal standpoint that's really resonated with you or maybe even your family or even then, you know, to to these investors that you would, you know, share and kind of recommend.
Christion Sadler [00:45:18] Yeah. So I would say go where you are valued, right? I'm in a stage of my life where I don't chase anything that's not chasing me. That goes for relationships. You know, that goes for business opportunities. You know, if somebody doesn't really want and value you, what are you doing there? Right. And some of the hardest times I've had in my life was when I was pursuing something that wasn't pursuing me back. So think about this, you know, I guess, you know, to to not try to ramble on too much about it. But, you know, there's been times in my life where I've really it's about too much opportunity, right? Not necessarily lack of opportunity. And so sometimes you push on the opportunities that resonate with you most. And then the ones that are the easiest to move are most likely the places where you should be placing your attention.
Paul Graham [00:46:07] And to your point, you kind of alluded to this the things that like pull you like, Hey, we're going here, let's go. And you're like, you know, okay, right. Granted, yes, it aligns with your values and your investment thesis or, you know, these kind of stuff. But assuming that no, that's an incredible reminder, especially in this kind of market, in this, you know, investment and just even personally to. So Christine, what I thank you so much for coming on. I'm so excited for this. You know, and I know you are, too. And, you know, look forward to having you on again to talk about capital in the future.
Christion Sadler [00:46:38] All right. Sounds great. Paul. I appreciate the time.
Paul Graham [00:46:40] Yeah, thank you. Hey, one last thing before you go. I wanted to share my mission while on this earth, and it's to help educate investors about different opportunities, share mindset tips on how to change our perspective and different things to really experience more joy in our lives. If this resonates with you at all and you enjoyed this episode, please share it with friends and others to help grow the community around. The Investor's Guide to Joy. Leading a five star review also helps grow the show and get connected to more people and share our experiences along the way. Thanks so much for joining and can't wait for you to listen to the next episode.